The Canada Climate Law Initiative is calling into question whether the Canada Pension Plan Investment Board is sufficiently aligning its investments with the transition to a low-carbon economy.

In a legal analysis, the organization said the pension fund’s current allocations to high-carbon assets reveal a “troubling incrementalism” within its efforts to mitigate Canadians’ exposure to material financial risks relating to climate change.

“Climate change poses systemic risks, impacting supply chains, future cash flows and disrupting business models across industries,” said Nick Silver, managing director of Callund Consulting, in a press release from the CCLI. “CPP Investments would best fulfill its investment mandate and serve the best interests of Canadians by transitioning out of declining fossil fuel assets and into industries of the future which will create the jobs, infrastructure and growth today that Canada will need to become a thriving economy in the 21st century.”

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The analysis also suggested that exposure to these assets may be inconsistent with the CPPIB’s fiduciary duty. It highlighted the duty corporate directors have to clearly communicate the impacts, current and future, of climate change on the company to their investors.

“Like other fiduciaries, pension fund administrators have a duty to consider material risks and return factors in making their investment policies and decisions,” said Simon Archer, pension expert and partner at Goldblatt Partners LPP. “Each year, we get better and better analysis about the risks of carbon assets.

“Today’s report highlights some apparent inconsistencies in CPP Investments’ stated policy objectives in addressing the risks associated with climate change and its expanding portfolio of high-carbon assets. Plan beneficiaries deserve a better explanation of how and when CPP Investments will transition away from these carbon-based assets.”

The report took a deep dive into six of the CPPIB’s current private investments in the energy and resources sector and analyzed its overall exposure to the sector through other asset classes, such as its public equity portfolio.

“CPP Investments has an opportunity for leadership in Canada’s future zero-carbon economy by supporting new technologies, companies and jobs in its investment strategy,” said report author Cynthia Williams, Osler chair in business law at Osgoode Hall Law School at York University.

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“Compared to business-as-usual investments that expand carbon assets, investing in the clean energy transition would be more consistent with CPP’s mandate to manage the CPP funds in the best interests of contributors and beneficiaries. We urge CPP Investments to fundamentally re-evaluate its role in Canada’s economy and align its investment strategy with the needed clean energy transition.”

In reaction to the report, Michel Leduc, senior managing director and global head of public affairs and communications at the CPPIB said in an email to Benefits Canada that the investor’s allocations range among all conceivable sectors. 

“The so-called pattern of investing in energy is only one of those many sectors, with an exposure that has been very stable over the last five years, even as our investments in renewables has grown dramatically.”

The pressure from such reports to divest from the energy and renewables sectors is misguided and would eliminate the CPPIB’s ability to influence higher standards at its portfolios companies, he added. “More urgently, it would stifle efforts to produce much cleaner, more sustainable forms of energy.”

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